Will Donald Trump's tariff have an impact on India? What experts say

United States President Donald Trump on Thursday announced that his administration is considering reciprocal tariffs on every country that taxes US imports.

"On trade, I have decided for purposes of fairness, that I will charge a reciprocal tariff, meaning whatever countries charge the United States of America, we will charge them. No more, no less," Trump told reporters in the Oval Office.

He also signed a memo ordering his team to start calculating duties to match those other countries charge and to counteract non-tariff barriers such as vehicle safety rules that exclude US autos and value-added taxes that increase their cost.

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Trump has also asserted that Washington will not spare India from reciprocal tariffs.

What are reciprocal tariffs?

Tariffs are taxes imposed on goods imported from another country. The importer has to pay this duty to the government.

Normally, companies pass on these taxes to end users. For example, if a company is importing a product, having 10 per cent customs duty, valued at ₹100 from other country, the cost of the product will go up to ₹110, according to PTI.

These duties, which are indirect taxes, are a source of revenue for a country.

Analysts expect reciprocal tariffs mean hiking rates on imports to match the level that other countries apply to US products.

What will be the impact on India?

Donald Trump announced his plan to impose reciprocal tariffs on every country hours before he was set to meet Prime Minister Narendra Modi in the White House.

While signing the order on Thursday, he specifically mentioned India saying: “India has more tariffs than nearly any other country”.

Later, after meeting with Prime Minister Modi in the White, Trump reiterated his charge against India.

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“India has been to us just about the highest-tariffed nation in the world,” Trump said at the White House, with Modi looking on. “Whatever India charges, we’re charging them.”

The US is facing huge trade imbalances with countries, especially with China. With India, the US has a trade deficit of USD 35.31 billion in goods in 2023-24. To bridge this gap, the US President is imposing these duties.

Analysts have warned that reciprocal duties could bring a broad tariff hike to emerging market economies such as India and Thailand, which tend to have higher effective tariff rates on US products, according to Bloomberg.

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“Emerging Asian economies have higher relative tariff rates on US exports and are thus at risk of higher reciprocal tariffs,” Nomura Holdings Inc. analysts led by Sonal Varma said in a note to clients. “We expect Asian economies to step up their negotiations with Trump.”

Similarly, Morgan Stanley analysts led by Chetan Ahya also predicted that India and Thailand could see tariff hike of upto 4 to 6 percentage points.

“India and Thailand could see tariff hikes of 4 to 6 percentage points if the US moves to narrow the trade gap”. However, “India may have room to increase purchases of US defence equipment, energy, and aircraft.”

(Inputs from agencies)